I recall writing an article on refit contracts years ago and the main point of concern I raised at the time remains the same today. Yacht owners would normally appoint expert lawyers for the review and negotiation of the terms of yacht-construction contracts, sale and purchase agreements of pre-owned yachts, design agreements and many other contractual documents relating to superyachts. However, when it comes to refit, conversion or even rebuild contracts it seems that, in most cases, these are negotiated with a light-touch approach without proper legal advice and without expert project managers.

The starting point of refit negotiations is normally dealt with by the yacht’s captain seeking quotations from the yard and agreeing the scope of works, and I believe this is probably the reason why the whole process, including the negotiations of the terms of the contract, is left in the hands of the captain and of the crew. But what if something goes wrong and the project doesn’t meet the owner’s expectations?

The value of some refit projects can be similar to the price of building a new yacht and the nature of certain works bears similar risks to those of a new-build project. So why are refit contracts not as carefully thought through? The same level of detail and consideration used when the yacht was originally built should also apply to refit projects, but I’ve seen many refit projects where the scope of work was uncertain and the specifications were vague, and this often results in the projects going over-budget.

Refit specifications should be negotiated with the same attention applied to the technical specifications of new-build projects. Yacht owners should have clearly in mind the scope and extent of works they intend to have done. Aside from purely cosmetic upgrades, owners should talk to the captain and crew about the day-to-day operation of the yacht and whether there’s anything in their view that can be improved to enhance the experience of both the crew and the owner.

The same level of detail and consideration used when the yacht was originally built should also apply to refit projects, but I’ve seen many refit projects where the scope of work was uncertain and the specifications were vague, and this often results in the projects going over-budget.

Giovanna Cabbia, partner, Clyde & Co

While there are two available standard form refit contracts – the BIMCO REPAIRCON 2018 and, the most commonly used in the superyacht industry, the ICOMIA (International Council of Marine Industry Associations) Standard Yacht Refit/Repair Contract 2021 – the terms of these contracts might need to be reviewed to take into account owners’ expectations about the price and terms for price increase, timing for completion of the works, the respective liability of owners and yards, and special conditions that might apply to the specific project.

The ICOMIA contract has been drafted by a committee of representatives of refit yards, and even though it isn’t much different from the BIMCO REPAIRCON, it’s slightly more in the yards’ favour. For example, the ICOMIA contract contains a very wide clause regarding events that entitle the yard to claim permissible delays and postpone the redelivery date. It also relieves the yard from any liability for any damages whatsoever that may be suffered by the yacht during her hauling out or launching, which ultimately is attributable to the limited, inaccurate or insufficient information provided by the owner and requires the owner to “accurately identify any existing damage and/or breakdown which may affect the yacht, her condition and structural integrity”.

Furthermore, the remedies and rights to terminate the contract are quite limited for the owner while, conversely, in the event of termination of the contract by the yard if the owner doesn’t deliver the yacht on the delivery date, the yard is entitled to keep the deposit, claim for further damages and compensation and the full contract price shall become immediately payable (which is inconsistent with other provisions of the contract stating that the yard is entitled to retain only costs incurred at the time of cancellation).

The BIMCO REPAIRCON tends to be as neutral as possible and leaves the parties to negotiate their special terms and conditions. However, it doesn’t factor in the technicalities of the superyacht industry because refits of commercial ships are normally performed for the purpose of achieving compliance of the ships with mandatory regulations of the Classification society and Flag states or simply to ensure ships maintain their Class or Flag status and not, like most superyacht refits, for upgrades and cosmetic reasons.

The above terms might work and be acceptable for many but owners should be made aware of the rights and remedies they have available. This isn’t to say that the ICOMIA or BIMCO REPAIRCON 2018 must be heavily negotiated but simply to provide some helpful tips to keep in mind before locking into a binding contract without understanding the legal implications.

This article first appeared in The Superyacht Report – Refit Focus. With our open-source policy, it is available to all until the end of November by following this link, so read and download the latest issue and any of our previous issues in our library.

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